Exodus CEO Banking On New Services

For L. William Krause, Exodus Communications Inc.s bankruptcy filing this week is a chance for the beleaguered hosting company to regroup and emerge a stronger, more focused organization.

On Wednesday, Exodus, which has been battling declining revenues and plummeting stock prices for much of this year, did what had been expected: It filed for Chapter 11 protection.

Krause, who was appointed chairman and CEO earlier this year after Ellen Hancock resigned, said in an interview today building new services and getting rid of customers that arent paying their bills or dont need what Exodus offers will be keys to getting the Santa Clara, Calif., company back on its financial feet.

"The primary beneficiaries of our filing under Chapter 11 are our customers. The short-term benefits really are continuing day-to-day operations. The long-term benefits are having a viable Exodus" that will have new services and compete against the likes of IBM, he said.

Meanwhile, many users say theyre making emergency plans to switch hosting providers, although those with larger presences say theyll give Exodus more time, in part because of the expense switching would cost them. And away from the trenches, industry analysts are debating whats next for the troubled corporation.

Krause said his intention is to bring the company back to health, but that he would consider any reasonable offer to buy it.

"Im here to build a company, not liquidate it," he said, adding, "If anybody wants to buy our company, please let them know were open for business."

The decision to file for bankruptcy hadnt yet been made when Krause took over 18 days ago. He said the primary causes of Exodus problems were the same as those outlined by Hancock before her departure: too great an emphasis on dot-com businesses and a too-speedy infrastructure build-out.

Many sources also spoke of executive-level in-fighting over the companys future direction. Those problems, along with a focus on growth instead of profits and being late to the enhanced services niche, caused symptoms like $3 billion in debt, three rounds of layoffs, a plummeting stock price and market cap, mass customer churn, and numerous executive- and board-level shifts.

According to Krause, some of the services Exodus will be emphasizing will be server security, network management and monitoring, and virtual private networking. It already has offerings in those areas, but theyre "not very well done and not very well defined. We can do better," he said.

Shedding customers

Krause also said its vital for Exodus to eliminate customers who dont need Exodus level of service and who cant pay their bills, he said.

"We have a lot of customers who dont qualify to be customers," he said. "We shouldnt have had them as customers in the first place, [although] virtually 90 percent of that [was] self-induced."

Exodus will give notice to such customers "to go be a burden to someone elses balance sheet. If you cant pay your bills, please go away. Quickly," Krause said.

Moreover, the companys new $200 million in emergency funding from GE Capital will only be in a buffer account and wont be touched otherwise. Also, 10 data centers under construction will be canceled, and there will be more layoffs, he said.

Krause spent much of the day talking to users and the media, including hosting a conference call this afternoon for users. The company also posted publicly viewable bankruptcy timeline information and letters to investors and suppliers on its Web site.

Backup plans in place

On the customer front, many say that theyve had backup plans in place for several months, given Exodus long and public slide downhill. Exodus customers range from medium-sized dot-coms to bigger players Merrill Lynch & Co. Inc. to Yahoo Inc. to numerous but undocumented government servers,

Many say theyre being hotly courted by Exodus competitors, but that theyll stick with Exodus for the short term. Still, theyre watching the situation closely.

"We work with a variety of partners already. If we need to expand those relationships we will, as well as consider other new partners," said MSNBC.com spokesman Peter Dorogoff, in Redmond, Wash.

"We have a rather significant footprint with Exodus," said Steve Widginton, executive vice president of operations development and marketing at Neoforma Inc., a San Jose, Calif., health care supply chain manager. "We estimate it would cost us about $250,000 [to switch providers]. Weve run through that fire drill."

Neoforma has a backup contract with an Exodus rival UUNet.

Analysts said the next logical step for Exodus is being bought, with the short list of potential buyers including IT monolith Electronic Data Systems Corp. and telecom giants without major hosting arms, such as SBC Communications Inc. or Sprint Corp. Another possibility is Global Crossing Holdings Ltd., Exodus largest shareholder. Representatives of those companies would not comment.